Cover - Hotelier Magazine

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CANADIAN PUBLICATION MAIL PRODUCT SALES AGREEMENT #40063470
T H E
M A G A Z I N E
F O R
H O T E L
E X E C U T I V E S / M A Y
2 0 1 6
THE 2016 CANADIAN
HOTEL INVESTMENT ISSUE
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Volume 28, Number 3
| May 2016
Contents
Features
13 ON THE MOVE The annual HAC Conference highlighted the challenges posed by the rapidly evolving hotel industry
By Jackie Sloat-Spencer
2016 CANADIAN HOTEL INVESTMENT ISSUE
Scan to view
our website
14 BUILDING MOMENTUM Hotelier and Starwood
Hotels & Resorts host this year’s Investment
Roundtable in Toronto Interview by Rosanna Caira
25 TAKING STOCK Buoyed by strong prices and increased interest from buyers, 2015 was a healthy year for hotel
investment volume By CBRE Hotels Canada
29 PAVING THE ROAD TO SUCCESS
With the exception of energy-dependent regions, 2016 should be a good year By Colliers Hotels International
35 STRENGTH IN NUMBERS As the lodging industry faces disruption from the likes of OTAs and innovation,
traditional hotel companies are consolidating to stay competitive By Carol Neshevich
COVER PHOTOGRAPH BY JOHN HRYNUIK
39 WESTERN WOES Hoteliers are looking at the bright side of a challenging situation in parts of Western
Canada By Jackie Sloat-Spencer
43 KEEPING IT FRESH Operators continue to invest in capital expenditures to keep on top of a competitive market By Danielle Schalk
45 DOLLARS AND SENSE Coming off a strong year in hoteliermagazine.com
2015, Canada’s finance environment offers a
competitive landscape for investors By Amy Bostock
Departments
2 EDITOR’S PAGE
5 CHECKING IN
48 HOTELIER: Paul Ielovcich, Epik Hotel, Montreal
ON THE COVER: (l to r) Tony Cohen,
Cresent Hotels & Resorts; David Larone,
CBRE Ltd.; Drew Coles, InnVest REIT; Lin
Saplys, API; Curtis Gallagher, Cushman &
Wakefield; Scott Duff, Starwood Hotels &
Resorts; Edward Khediguian, GE Capital
Franchise Finance; Allison Reid, Starwood
Hotels & Resorts; and Steve Gupta, Easton’s
Group of Companies
MAY 2016 HOTELIER
1
EDITOR’S PAGE
ROLLING THE DICE
S
ometimes, real-estate deals which
transpire in the hotel industry make
it feel like a game of Monopoly. From
one moment to the next, no one really
knows what each roll of the dice will bring.
Which player will land on the property
of choice? How much will the transaction
cost? How long will it take to close the
deal? And finally, how will it impact the
rest of the marketplace?
These are only a few of the questions
that typically surface in any real-estate
transaction. But, earlier this year, in the
case of Marriott’s acquisition of Starwood Hotels, the deal took on a life of
its own as a consortium of Chinese companies, led by Anbang Insurance
Group, made a competing and unsolicited offer to acquire the American
behemoth, adding an unexpected twist to an already complex acquisition.
For several weeks, a bidding war ensued and just when it seemed like a
decision had been finalized, a new offer was on the table, leading one to
speculate just how long the acquisition process would take. For Marriott,
the back-and-forth machinations ended up costing them more on the deal
and delaying the outcome. Ultimately, patience prevailed and the process
was finally settled with Marriott emerging victoriously; but not before a lot
of nerves were frayed.
On the flip side, Accor’s acquisition of Fairmont Hotels & Resorts has
been less frenetic and, perhaps, more straightforward, with little additional information surfacing since the deal was announced late last year. But
like the Marriott deal, the impact of this buyout has yet to be determined.
What will happen to the Fairmont brand? Will the company remain
headquartered in Canada or move to Europe? How will the acquisition
impact staff here?
Welcome to the world of hotel investment. While we may liken real-estate
deals to a game, they’re anything but. This is serious business with high stakes
and sometimes high anxiety. Last year, a total of $2.47 billion was exchanged
among buyers and sellers in Canada, representing almost 150 deals. It’s been
a strong year for the Canadian marketplace, as many of the stories in this
special Canadian Hotel Investment Issue illustrate (See stories beginning on
p.14). But, it’s also been a busy one with regard to mergers and acquisitions —
and not just as it relates to hotels. Even real estate, consultancy and lending
communities were involved. In the past year, CBRE acquired PKF; DTZ
acquired Cushman & Wakefield and in mid-April, Canadian Western Bank
bought GE Capital’s Candian Franchise Finance business.
Granted, it may appear that these transactions involve only two sides — a
buyer and a seller — but the reality is far greater in scope, as each of these deals
ultimately affects the broader industry at large in ways we can’t always predict.
ROSANNA CAIRA
ROSANNA CAIRA | EDITOR & PUBLISHER
rcaira@kostuchmedia.com
MARGARET MOORE | ART DIRECTOR
ideas@margaretmoorecreative.com
AMY BOSTOCK |
JACKIE SLOAT-SPENCER |
DANIELLE SCHALK |
MANAGING EDITOR
abostock@kostuchmedia.com
ASSOCIATE EDITOR
jsloat-spencer@kostuchmedia.com
ASSISTANT EDITOR
dschalk@kostuchmedia.com
DEREK RAE |
MEGAN O’BRIEN | COURTNEY JENKINS | MULTIMEDIA MANAGER
drae@kostuchmedia.com
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ACCOUNT MANAGER
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MITCH KOSTUCH | FOUNDER
ADVISORY BOARD
David McMillan, AXIS HOSPITALITY INTERNATIONAL; Bill
Stone, CBRE HOTELS; David Larone, CBRE HOTELS; Anthony
Cohen, CRESCENT HOTELS — GLOBAL EDGE INVESTMENTS;
Charles Suddaby, CUSHMAN & WAKEFIELD LTD. — HOSPITALITY & GAMING GROUP; Christiane Germain, GROUPE GERMAIN
HOSPITALITE; Michael Haywood, THE HAYWOOD GROUP; Lyle
Hall, HLT ADVISORY; Drew Coles, INNVEST REIT; Scott Allison,
MARRIOTT HOTELS OF CANADA; Ryan Murray, THE PILLAR +
POST HOTEL; Geoffrey Allan, PROJECT CAPITAL MANAGEMENT
HOTELS; Stephen Renard, RENARD INTERNATIONAL HOSPITALITY & SEARCH CONSULTANTS; Anne Larcade, SEQUEL HOTELS
& RESORTS
HOTELIER is published eight times a year by Kostuch
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(416) 447-0888, Fax (416) 447-5333. All rights reserved.
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Editor and Publisher
rcaira@kostuchmedia.com
FOLLOW US:
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MAY 2016 HOTELIER
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Checking In
THE LATEST INDUSTRY NEWS FOR HOTEL EXECUTIVES FROM CANADA
AND AROUND THE WORLD
JOINING FORCES
As Marriott International’s acquisition of
Starwood Hotels & Resorts Worldwide
nears closing, Marriott has been hard at
work making plans for the future of the
combined company. “We expect to accelerate the growth of Starwood’s brands,
leveraging Marriott’s worldwide hotel
development organization and owner
and franchisee relationships,” says Arne
Sorenson, president and CEO of Marriott
International. “The company will have a
broader global footprint and the most
powerful frequent traveller programs in the
UPPING THE ANTE
A competing bid forced Marriott’s hand, resulting in a better
offer for Starwood BY DANIELLE SCHALK
T
he proposed Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc.’s merger has become one of the most interesting business deals in the industry’s history. The hotel giants made
front-page headlines worldwide when a bidding war over Starwood
unexpectedly broke out in March.
The media frenzy began when Starwood announced it had received an
unsolicited buyout offer from a consortium of Chinese companies led by Anbang
Insurance Group. This new bid — announced just two weeks prior to the date
both Starwood and Marriott stockholders were set to vote on the merger of
the two companies — solidified into an offer of $78 per Starwood share, which
Starwood deemed superior to Marriott’s proposal. Marriott countered with an
offer of $13.6 billion ($79.53 per share), which Starwood accepted on March 21.
Anbang upped the ante once again with an offer of $14 billion — an increase
of $4.75 per share from the consortium’s previous bid. However, the heated battle
came to an abrupt end when the Chinese consortium, for reasons unknown,
withdrew its offer just days later. With Anbang and company out of the running,
stockholders of both Starwood and Marriott voted to accept the amended
merger agreement between the two companies in early April, which means
things are back on track for a mid-2016 closing date.
“The logical buyer — from an operational and synergy standpoint — won the
war and won it at the top end of the price range that made sense for them,” says
Lyle Hall, managing director of Toronto-based HLT Advisory.
With the formation of the world’s largest hotel company on the horizon, Hall
notes that a buyout by Anbang would likely have had less impact on the lodging
industry, from both a global and Canadian standpoint — citing hotel owners’
negotiating power as a key area which could be affected by the merger.
While the merger has received regulatory approval from several jurisdictions,
including the U.S. and Canada, it still needs to clear anti-trust reviews in the
European Union and China.
industry, strengthening Marriott’s ability to
serve guests wherever they travel.”
As a result of due diligence and jointintegration planning, Marriott believes
it will be able to achieve $250 million in
annual cost synergies within two years
of closing the deal, up from $200 million
estimated in November 2015.
DOUBLING UP
A key challenge of the Marriott/
Starwood merger will be determining
how to combine the Marriott Rewards
and Starwood Preferred Guest (SPG)
programs. The two loyalty programs
currently have very different structures
and client-bases, as well as partnerships
with competing credit-card companies.
In a recent message to SPG members,
Marriott stated: “we don’t anticipate
launching a newly combined program
until 2018. In the meantime, we’re actively
exploring ways to build bridges between
the two programs to further enhance
[customer] experience.”
MAY 2016 HOTELIER
5
TORONTO PREMIER
COMING EVENTS May 16-17: Canadian Hotel Investment
Best Western’s Premier
brand has landed in
Toronto with last
month’s opening of the
Best Western Premier
Toronto Airport
Carlingview. “We are
excited for the Best
Western Premier Toronto
Airport Carlingview
Hotel to be the first
Premier Hotel to serve
the Toronto market,” says Roshan Jainudeen, GM. “This hotel, within a
bustling metropolitan area, offers comfortable, yet sophisticated accommodations that will meet an array of travellers’ varying needs.” The 119-room
property — previously an InterContinental Hotel Group’s Indigo hotel —
offers on-site dining, room service, 24-7 fitness centre, business centre, heated
lap pool, steam room and Smart TVs in the guestrooms. “We are looking to
create a larger presence in first-tier urban markets such as Toronto, especially
with our Best Western Premier and V b brands,” says Ron Pohl, SVP of Brand
Management at Best Western Hotels & Resorts. “This is a very welcome
addition to our expanding family.”
ON THE RISE
The global hotel construction pipeline
hit an all-time high in April, checking
in at 11,130 projects/1.9 million rooms.
This represents the highest level
Lodging Econometrics (LE) has ever
recorded. According to the latest Global
Construction Pipeline Trend Report from
LE, the global pipeline is up nine per cent year-over-year by both project and room
numbers, led by significant growth in the U.S. Globally, 5,287 projects/986,913 rooms
are under construction, up one per cent by projects and three per cent by rooms. The
number of projects scheduled to begin construction in the next 12 months — 3,041
projects and 440,632 rooms — is up 30 per cent and 25 per cent respectively.
Conference, Fairmont Royal York and Metro
Toronto Convention Centre, Toronto.
Tel: 416-924-2002 ex. 233; email:
vickiwelstead@bigpictureconferences.ca,
website: hotelinvest.ca
May 24-26: 2016 Tourism Industry Association of B.C. AGM & Summit,Sun Peaks, B.C.
Tel: 604-685-5956; email: info@tiabc.ca,
website: tiabc.ca
June 16: Kostuch Media’s Icons & Innovators Breakfast featuring Cora Tsouflidou,
Sheraton Centre Toronto Hotel, Toronto.
Tel: 416-447-0888 ex. 235; website:
foodserviceandhospitality.com/shop
June 20-23: HITEC 2016, Ernest N. Morial
Convention Center, New Orleans. Email:
attendee@hftp.org; website: hftp.org
explore-hitec
Sept 22: Kostuch Media’s Icons & Innovators Breakfast featuring George Cohon,
Sheraton Centre Toronto Hotel, Toronto.
Tel: 416-447-0888 ex. 235; website:
foodserviceandhospitality.com/shop
Sept. 25-26: 3rd Annual ILHA Luxury
Hospitality Summit, Gaylord National Resort
& Convention Center, Washington D.C.
website: luxuryhotelconference.com
Sept 26-29: The Lodging Conference,
Phoenix. Tel: 610-436-8400; email:
harry@lodgingconference.com; website:
lodgingconference.com
FOR MORE EVENTS,
visit http://bit.ly/Hotelierevents
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GE CANADIAN
FRANCHISE
FINANCING
SOLD TO CWB
Following months of speculation,
the Canadian Western Bank has
acquired GE Capital’s Canadian
Franchise Financing business. The
acquisition means the company
will be in the hands of Canadian
ownership with a Canadian market
Ed Khediguian
and industry focus. According to Ed
Khediguian, senior vice-president of
Franchise Finance, GE Canadian Franchise Financing, “CWB is committed to
supporting the future growth of the franchise finance business after the transaction closing date, expected in the second quarter of calendar 2016.” With the
acquisition, the business will be operated as an extension of CWB’s commercial
banking focus, with the same dedicated team of experts currently employed by
GE, “leveraging the average tenure of 10 years in place,” says Khediguian. It will
also maintain a distinct industry focus and brand, likely under a new banner of
CWB Franchise Finance. “We expect CWB’s ownership to increase the service
options we can provide to our customers in the future, including additional
financing options and comprehensive commercial banking services,” says
Khediguian. — Rosanna Caira
InBrief
Sheraton Hotels & Resorts has
unveiled the results of an extensive $120-million renovation of the
Sheraton Centre Toronto Hotel.
The two-year refurbishment project
included a complete overhaul of all
1,372 guestrooms and suites, as well
as a function space expansion and
meeting room restorations…Hilton
HHonours and Marriott Rewards
tied for highest overall customer
satisfaction in J.D. Power’s 2016 Hotel
Loyalty/Rewards Program Satisfaction Report, each receiving 741 of a
possible 1,000 points. IHG Rewards
followed close behind with a total
of 722 points…Starwood’s newly
launched Tribute brand is set to
debut in Quebec City next year with
the opening of Hotel Pur Quebec.
The 242-room property, formerly a
Tryp by Wyndham, will undergo
a makeover before opening…The
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Canadian Hotel Investment Conference
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world’s first international organization for GMs, dubbed The Honourable Order of International Hotel
General Managers (HOIHGM), has
officially launched from its regional
headquarters in Dubai. The organization is designed to raise the profile
of hotel GMs, while providing a
range of professional and personal
membership benefits. Membership is
open to all hotel GMs, former GMs,
owner/operators, as well as retirees
and aspiring young professionals
on the career path to becoming
a GM….Choice Hotels Canada
opened four new hotels during the
first quarter of 2016, growing its
total number of properties to 321.
Openings include: Quality Inn
Airport, Dieppe, N.B.; Quality Inn
& Suites, Kingston, Ont.; Quality
Inn & Suites, Grande Prairie,
Alta.; Quality Inn & Suites,
Yellowknife, N.W.T. The company
expects to open seven hotels in the
second quarter of 2016… A new
Four Points by Sheraton has landed
on the Regina hotel scene. The new
Four Points Regina features 127
guestrooms, 1,210-sq.-ft. of meeting
facilities and a full-service restaurant, Movado’s Grill. Four Points’
growing pipeline includes the Four
Points Edmonton West, Four Points
Grande Prairie, Alta. and Four
Points by Sheraton Sherwood Park,
Alta.…Realstar Hospitality has
opened its newest franchise location
— Days Inn & Suites – Moncton.
The 151-room building owned and
operated by Holloway Lodging
Corporation, features a super-sized
indoor pool, fitness centre, free Wi-Fi,
meeting and conference space…The
Pan Pacific Hotel Vancouver has
completed its major renovation of its
guestrooms and public spaces. The
guestrooms reflect the Italian-style
elegance with warm sandy tones and
the hotel’s signature Birdseye maple,
while the hotel’s 42,000-sq.-ft. of
conference and meeting space now
offer new audio-visual technology.
The hotel is set to undergo a second
set of renovations focused on the
Pacific Club Lounge and Club floors.
People
Groupe Germain has named two
new GMs; Marie Pier Germain
is the new GM of the Alt Hotel
Montreal and Julie Brisebois is set
to take the helm of the new Alt
Hotel Ottawa, opening this spring.
Germain most recently served as
director of Operations at the Alt
Hotel Montreal. Brisebois was previously GM of the Alt Hotel Dix30
in Brossard, Que., and recently the
Alt Hotel Montreal…David Cloutier
has joined the team at Calgarybased Superior Lodging Corp. in
the role of director, Franchising and
Development. Cloutier, who has a
background in restaurant management and finance, will help grow the
Travelodge and Super 8 brands in
Quebec and the Maritimes…Antoine
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For more information go to:
cushmanwakefield.com
David Cloutier
Julie Brisebois
Blanc is now CFO for North America, Central America
and Caribbean Region (NCAC) at AccorHotels. Blanc
served as the group’s CFO for Mexico since 2012. Prior
to this role, he held various positions supporting strategic
projects in the group’s Corporate Finance department
in Paris…Simon Renaud is now heading the Hilton
Quebec’s culinary operations, including banqueting
services and its two restaurants, Allegro and Resto Le23.
With more than 20 years of experience, chef Renaud
has worked at several major hotels in Quebec City and
Montreal, including the Hyatt Regency Montreal,
Château Mont-Sainte-Anne and the Delta Hotel in
Montreal…David Spero is the new executive chef at the
Calgary Marriott Downtown. In this role, Spero will
be responsible for all of the property’s food-and-beverage
operations, including catering for the newly expanded
meeting space, One18 Empire and the Calgary Telus
Convention Centre.
SupplySide
Cambridge, Ont.-based Dimplex has released its new
Opti-myst Pro 1000 Electric Fireplace Cassette, which
offers design versatility for residential and commercial
spaces, including the ambiance of a fireplace in locations
where gas is impractical or not allowed. Designed to be
permanently installed into any framed construction, the
chassis works with almost any design and finish material…Cintas Corporation, based in Chicago, launched its
2016 Uniform Book, featuring innovative fabric technologies and more than 60 new garments. The 2016 lineup
features updated silhouettes, as well as eco-friendly,
EcoGir anti-bacterial and odor-blocking Odegon Shield
fabric options…Toronto-based The HIDI Group has
partnered with Gaithersburg, Md.-based Electro-Media
Design Ltd. (EMD) to deliver more comprehensive AV,
IT and engineering services for the lodging indusry. The
two companies have previously collaborated on several
projects worldwide, including 11 Four Seasons Hotels and
The Quin Hotel in New York.
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CANADIAN HOTELIER
THE 2016
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CONFERENCE REPORTS
ON THE
MOVE
The annual HAC Conference
highlighted the challenges
posed by the rapidly evolving
hotel industry
BY JACKIE SLOAT-SPENCER
I
t was Tony Pollard’s final Hotel
Association of Canada (HAC)
conference, as the president
of the Ottawa-based association prepares to retire later this year.
As the audience toasted the longrunning advocate, they learned about
innovations, the new sharing economy and the state of the industry.
“What an unpredictable year it’s
been,” said Philippe Gadbois, SVP
of Operations at Atlific Hotels and
Chairman of the Board at HAC.
“The Canadian stock market was one
of the biggest losers in the developed
world; the country’s once-hottest
economy, Alberta, became a ‘havenot’ province, and yet, 2015 was
generally a good year in the hotel
industry in this country.”
Ending the year with 64-per-cent
occupancy, ADR of $144 and $94
in RevPAR, the Canadian hotel
industry is expected to see occupancy
contract and a slight improvement in
both ADR and RevPAR in 2016.
But new challenges are presenting
themselves. “We continue to deal
with the so-called ‘shared economy,’”
Gadbois added. “Our position and
message is clear; provincial and
municipal governments are leaving
a ton of money on the table. Private
hotel rooms must be regulated and
treated the same way as all of our
hotel rooms. Taxes should be paid on
the total room, not simply the net. It
must be a level playing field.”
That sentiment was debated during
a panel discussion featuring Airbnb’s
country manager for Canada,
Aaron Zifkin, AskForTask Inc.
CEO Muneeb Mushtaq and Rover
LEVELLING THE FIELD
A panel of experts discussed Canada’s sharing economy
Parking founder Tim Wootton. “In
the past 12 months, interest in the
sharing economy is tremendous,” said
Mushtaq. “The normalization or legitimization is the most drastic change
in the past year,” Zifkin added. But,
when it comes to insurance and
taxation, “insurance is still behind
and they’re working hard to come up
with a product that makes sense for
what’s being offered,” Wootton said.
In a later session, Canadian Minister
of Small Business and Tourism Bardish
Chagger urged the audience to keep
the momentum going leading up to
Canada’s 150th birthday, while former
CEO of Hilton Group, Sir David
Michels admitted that after 52 years
in the hospitality industry, he’s found
the recipe to success is about the right
location, great employees, understanding the customer, offering value and
above all, a comfortable bed.
Meanwhile, the HAC Hall of
Fame Awards of Excellence were
presented to Scott Allison, Marri-
ott Hotels of Canada (Humanitarian Award); Carolyn J. Clark,
FRHI Hotels & Resorts (Human
Resources Award); The International Centre, Toronto (Green Key
Meeting Award); and Pemberton
Valley Lodge (Green Key Energy &
Environment Award).
The day ended with a champagne
toast, celebrating Pollard’s 25 years
with HAC. “The world has changed
so much in the days since I was hired
in 1991,” he said.
Pollard also shared how proud
he was of the Green Key program
and HAC’s government-relations
department. “Look at where we are
today with the government and how
they listen to us. For example, we
had a tourism budget last year, we
now have a federal tourism strategy.
All of these things are happening
because we have a good governmentrelations program in Ottawa and, as
I leave later this year, that’s what I
am most proud of.” u
THE RESULTS ARE IN
Topics such as air-travel costs, the low Canadian dollar and the proliferation of technology were on the
table at the Hotel Association of Canada (HAC) conference, which released details from its annual Travel
Intentions Survey. The economy is affecting travel plans, and 20 per cent of respondents said they would
travel more because of cheaper airfare, discount accommodations and the low Canadian dollar. But 91 per
cent said Canadian air-travel costs are too high and 68 per cent said it was due to taxes/surcharges. When
it comes to new technology, more than half of respondents were unwilling to trade face-to-face interaction
for mobile check-in. Meanwhile, 77 per cent of business travellers comparison-shop room rates while 64
per cent said they can get a better rate from a third party. Respondents agreed there is a benefit to booking
directly with a hotel (84 per cent) and 79 per cent said they would do so if given free amenities.
MAY 2016 HOTELIER
13
BUILDING
MOMENTUM
Panelists at Hotelier’s Investment Roundtable were cautiously
optimistic about Canada’s 2016 hotel landscape
INTERVIEW BY ROSANNA CAIRA
PHOTOGRAPHY BY JOHN HRYNIUK
THE PANEL (clockwise from far left) Tony Cohen, Crescent Hotels & Resorts; David Larone, CBRE Ltd.; Drew Coles, InnVest REIT; Lin Saplys, API; Curtis Gallagher, Cushman & Wakefield; Scott Duff, Starwood Hotels & Resorts; Edward Khediguian, GE Capital Franchise Finance; Allison Reid, Starwood Hotels
& Resorts; and Steve Gupta, Easton’s Group of Companies
14
MAY 2016 HOTELIER
INVESTMENT ROUNDTABLE
INTERVIEW BY ROSANNA CAIRA
In 2015, mergers
and acquisitions
fuelled growth in
the Canadian hotel
industry, resulting in
a strong year for many
of the major brands.
However, midway into
2016, hoteliers are
taking an increasingly
cautious approach to
growth predictions.
Geopolitical factors,
the falling price of oil
and a weak Canadian
dollar were cause
for unease entering
the first quarter of
2016. Despite these
concerns, panelists at
last month’s Hotelier
Investment Roundtable were cautiously
optimistic about the
coming year.
Hotelier: What type of year was 2015 for your company and the hotel industry in Canada?
David Larone: In the past year we
sold our practice to CBRE. It was
a busy year from a work perspective in Canada but also a lot of
work in the Caribbean and Latin
American. I’m generally optimistic
about the Canadian industry. We
have some areas that are struggling, but if we look at the West
and Central Canada, it’s a pretty
positive outlook — some interesting dichotomy in the industry, but
generally positive.
Steve Gupta: For us, last year was
steady. We launched the Gupta
Group and we were the fastestselling condominium developer
in the GTA with two large multiuse projects — one in York Mills
and one downtown on Bloor St.
at Rogers Way. This year we will
be building two more hotels — a
Starwood Element and a Residence
Inn in Mississauga. Four more
hotels are in development now.
Tony Cohen: Last year, we bought
the Hotel Pur in Quebec City and
signed an agreement with Starwood
to become the first Tribute in
Canada. As Crescent Hotels, we
grew the company by 25 hotels
across North America last year —
specifically in Canada we grew by
eight hotels. We now have more
than 14 in Canada — we are in six
provinces and 28 states.
Allison Reid: Last year was a very
good year for Starwood. We signed
220 deals, which is a high watermark for Starwood — roughly half
are managed, half are franchised
globally. A lot of our growth is
in Element and Aloft — Select
Service. Globally, the regions are
performing as you would expect.
Oil-based regions are having
difficulty, just like in Canada,
while most of the other markets
are having really good years. Our
concerns in 2015 were the same
concerns we all have about our own
investments due to political risk.
Geopolitical risk, the impact of
oil prices on the market and what
happens with oil will determine
what happens market-by-market.
Curtis Gallagher: We went through
a merger last year and were acquired
by new owners. We went from
the fifth-largest real-estate service
company in the world to the second
or third. That will help us in terms
of broader reach because what we
are seeing in the market, particularly in Canada, is a lot of foreign
investments... The last three or
four deals I completed in Canada
have been either new capital to the
hotel business or new investments
in the country and that’s encouraging. For us, 2015 was strong and
2016 will be as well. There will be
more product out there and probably a landscape change in terms of
the ownership profile.
Edward Khediguian: In April of last
year, GE announced it was exiting
completely out of its capital businesses and refocusing the company
into primarily an industrial-based,
technology-based company.
A Canadian institution will be
buying the Canadian platform built
over the years. It’s an institution that
wants to build its presence in the
hotel and restaurant industries in
Canada, so it’s a good thing. [Editor’s
Note: A few days after the investment
roundtable, it was announced that
Canadian Western Bank had acquired
GE Capital’s Canadian Financial
Franchise business].
Hotelier: What kind of year do you
think 2016 will be?
Larone: Notwithstanding what’s
taking place in the resource sector
in the country, we’re still looking at
RevPAR growth nationally in the
range of 2.6 per cent for the year. In
Western Canada, we’re down about
a half a point — that’s Alberta and
Saskatchewan weighing on B.C. —
but RevPAR growth is in the seven
per cent range for Metro Vancouver and six per cent for Central
MAY 2016 HOTELIER
15
now looking to jump in and get the
support of someone like Starwood.
The dynamics, for us, from the development standpoint, are very strong.
There’s still a lot of money out there
to do deals. A lot of money is flowing
out of places such as China and the
U.S. I think [growth] will be in the
Select-Service space. It’s hard to
predict at the beginning of the year
where capital is going to flow to, but
there’s plenty of capital out there and
the fundamentals of the hotel space
are still very solid.
Drew Coles: We’re seeing a change
Canada (Ontario and Quebec).
We’re probably going to be looking
at GDP growth in the first quarter in
Canada for sure — better than they
are forecasting. The dollar is helpful
for exports... Our hotels are full —
we’re basically at functional capacity
in the major markets. Montreal,
Ottawa, Toronto and Vancouver are
running above 70 per cent occupancy. In a lot of the markets, there’s
good opportunity.
Scott Duff: Even though a number of
franchisees in Western Canada
have reported seeing a decline, they’re
coming off such a high basis that for
some of these hotels a bad day is still
not too bad. It’s certainly not apocalyptic for them and the change in
the mix is certainly very pronounced,
especially in the city centres.
Reid: We’re going to have a really
good quarter. Aloft and Element
specifically been very strong brands
for us. No matter how much supply
we put in, it’s generally been, at
least for us, 46 per cent in the
Select-Service space in the markets
that our customers are drawn to.
Our new brand, Tribute, has
shown a lot of growth with the
truly independent guys who are
16
MAY 2016 HOTELIER
in customer segmentation, especially
in the city centres in Western
Canada. From 2010 and beyond, you
had mid-week business, transient
customers in that sector paying high
rates. Now, lower-rated groups, associations and so on are all of a sudden
interested in Calgary and Edmonton.
So you shift your demand pattern
and shift your customer segmentation, but the average rate profile has
taken a hit. Vancouver had a terrific
year in 2015 and that strength will
continue. Across Ontario, whether
in the city centres or in some of
the more tertiary manufacturing
sectors, there seems to be some pretty
good strength. City centres will still
perform and, Calgary and Edmonton
aside, the economic outlook across
the country looks pretty good.
Khediguian: There hasn’t been a
better time in terms of liquidity for
the hotel market. In terms of cycles,
volumes are up significantly. There
is a lot of supply starting to hit the
market. The capital markets are
starting to tighten quite a bit in the
in the U.S., but that it isn’t necessarily the case in Canada. There’s a lot of
liquidity, especially for smaller transactions up to a single asset — $10 to
$12 million. There’s also been a lot
of liquidity in the $35 to $40-million
plus. You’re probably going to see a
lot of tightening on the larger transactions as the U.S. influences capital
markets in the real-estate space and a
bit of tightening in the mid-market.
Hotelier: Looking at the rest of
this year and into next, where do
you think the most growth will
happen in terms of both location and segments?
Khediguian: It goes back to compo-
nents and content — whether it’s
full-service or Select-Service, you
have to figure out those components.
Gupta: The smaller full-service will
Duff: I think [growth will be] on
the development side. Products
are coming out of the pipeline
in Alberta in a pretty meaningful fashion — we’ve been fortunate [development] is continuing
onward with no interruption. You
are going to have meaningful
supply growth in places such as the
Calgary Airport area and Edmonton, as well as in some of the
secondary markets and we’ll see
this through the end of this year
and early next.
[Select Service] is certainly still
going to continue to be strong.
In many instances, you sort of
get a full-service type experience
without necessarily the price —
guests don’t need all those bells
and whistles that you may have
in a full-service hotel. You’re still
getting the benefit of a great loyalty program, quality service and a
very efficient program. The SelectService hotels today are not your
father’s Oldsmobile; they are very
different — a lot more interesting.
Khediguian: You’ve got to find
work. That’s what we are trying to
do. Cut down on meeting space and
cut down on F&B.
Lin Saplys: In the last nine months
we have seen an exponential
increase in renovations of existing product and of throwing up a
second hotel [on the same property].
We’re doing a lot of master plans
with hotel components — the hotel
may not go up immediately, but
it’s there for the pro-forma and the
financial model that some of these
developers are putting together —
a lot of first timers. What’s driving
[these trends] is diversification.
Portfolios are changing for a lot
of these real-estate companies —
not necessarily REITs — who are
looking to expand their base and
get into the hotel market. The
hotel market is sexy. It’s about
community.
Reid: Dual-branding happens
because it caters to specific needs
and wants. You don’t need 1,000
rooms — that’s one point of view.
For example, in our case we have an
Element, which is Select-Service and
serene, and Aloft, which is a more
upbeat kind of hang-out — [combining] those two products will ensure
that a developer gets pretty good
returns on both individual products.
markets where it makes sense,
such as the Hilton Garden Inn in
Montreal, which is taking a SelectService model and tweaking the
content and operations.
Hotelier: Are we, then, seeing
the demise of larger, full-service
hotels?
Gallagher: In and around Toronto,
real-estate owners are looking at
how to maximize value. Do we
build a parking structure and add
more retail? Do we build a parking
structure and add a hotel? [Operators are looking for] ways to generate greater value in their properties
because they understand that land
and good locations are scarce.
MAY 2016 HOTELIER
17
like a charm.
Cohen: We’ve got to stick to our
Should it be a 1,300 room hotel,
these days…it might be chunky.
It’s location driven, but I agree, you
have to make the space meaningful,
no matter what the brand, and you
have to respond to consumer needs.
Cohen: Looking at it through a
traditional lens, [full-service] is
ineffective in this day and age...
[If] you have a big old building and
there’s a lot of dead space, that’s not
generating anything. The Thompson, for example, has 100 rooms and
does over $15 million in food and
beverage because we’ve been able
to activate spaces in a meaningful
way and continuously evolve them.
We’ve been very successful, with
90 per cent occupancy, because we
drive a lot of weekend business and
that’s directly related to F&B.
Coles: In city centres, economically
it’s difficult to build full city-centre
assets; the barriers to entry are high.
But those assets will still be of value
to an investor to trade because of
their very nature… If you own those
hotels, you’d better make the space
meaningful — that’s the key. We
look at the Royal York Hotel as an
asset owner and manager...they like
the hotel because of the real estate.
18
MAY 2016 HOTELIER
Hotelier: How have food-and-
beverage offerings changed?
Gupta: At our hotel in Markham,
the huge restaurant area was losing
big bucks. So we converted the
property to two hotels with one
generic reception in the former
restaurant in the front. We have the
bistro, the courtyard and a breakfast
room on the top floor and it works
brand and our brand’s standards.
But, that said, we have to be a little
more creative and realize [food-andbeverage] in the traditional way
just isn’t going to cut it. About five
years ago at Crescent, we knew the
importance of food-and-beverage.
We started our own division called
Crescent Culinary to deal with
the ongoing challenges. Too often,
culinary or food-and-beverage is
overlooked. When you look at our
portfolio of 100 hotels and 19,000
guestrooms, we have in excess of 1.5
million sq.-ft. of meeting facilities
and 40 to 50 per cent of our revenue
is food-and-beverage. To not focus
on a critical component is opportunity lost. So, we created a vision to
help ourselves and our clients focus
on missed [F&B] opportunities.
Gallagher: It’s looking at it as a
whole. [Operators] need to look
at food-and-beverage as an investment, rather than just a service.
The investment that’s going into
restaurants [in Toronto] is exceptional, the service is exceptional
and food quality is exceptional.
We need to change the mindset of
a hotel investor or owner to looking
at [F&B] as an investment rather
than just a break-even, at best,
service provision.
Reid: Not every location can support
a restaurant. When you have the
right location, as the hotel owner,
you can almost always lease it out
[to a restaurant]... We have multiple
relationships with restaurant
partners and it’s not one-size-fits-all.
Grab-and-go is popular because four
nights out of five, guests will go to
their room or sit in the lobby and do
e-mails.
Hotelier: How important are soft
brands in today’s market and what type of development should we expect?
Reid: What’s really driving this
[trend] is a ton of entrepreneurial
people entering the hotel space and
creating really cool, unique brands.
There is the influence of distribution systems. Every real-estate owner
cares about how to get the most
customers for the cheapest cost.
That’s why the brands come in and
say ‘Well, you created this really
cool product but we can get you
distribution at a lower cost.’ We went
out and we talked to a lot of those
independent hotel owners and said
‘What are you looking for?’ Those
entrepreneurs said ‘We want your
distribution but we don’t really
want you telling us what to do on
brand standards’... Our tagline is
‘Stay independent. Stay doing what
you do.’
on what that real-estate owner
wants to spend their time and
money on. Sometimes it’s just easier
to take it off the shelf because the
main business is yield for their
investors, not creating entrepreneurial-type products.
Saplys: Hard brands are also
getting softer — we’re using the
brand standards as a guideline, not
necessarily a Bible anymore and
I’m finding a lot of the owners are
asking us to push that standard a
little bit more.
Hotelier: What is your company’s
primary investment intention in
the next 24 months?
Cohen: We’ve done six Autograph
Gupta: Early next year we will have
Collection conversions over the last
two or three years and many of the
other soft brands. You get the benefit
of the distribution, the reservation
system and the loyalty [program]
without their stringent brand restrictions. It’s a great way to plug into a
network that you wouldn’t otherwise
have access to as an independent...
It’s a win-win.
Reid: But there’s room for both soft
and hard brands — it just depends
two hotels open and by 2018 we’ll
have all four hotels in development open. We are also looking
into acquisitions — whether it’s a
conversion or a dual-brand — that
will continue. It’s hard for me to say
I’m going to do 10 more or 50 more
hotels. Our company believes in
quality not quantity. We are very
strategic so our growth pattern is to
find opportunity and move quickly.
C
M
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CM
MY
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a difference. Right now, we’ve got
three hotels under development
in Canada and another eight in
the U.S. — all of which will be
opened by the end of 2017. In terms
of either new acquisitions or new
management contracts, there’s a
pretty good pipeline there. We’ll
probably be 100 to 125 hotels,
but again, it’s strategic. We like
geographical diversity. The more
geographical, brand and asset-class
diversity we have, the more ability
we have to sell to different companies and groups, which drives more
business in the hotels and ultimately benefits our ownership.
Cohen: We’re very strategic, very
opportunistic. But we don’t grow
for the sake of growth. We’re the
third-largest management company
in North America and we have
absolutely no desire to be number
1. For us, it’s about finding the right
assets with the right ownership
groups where we feel we can make
Coles: For the next few years, we
are buyers and we are sellers. So,
as we have been doing for the last
year-and-a-half, we will be trading
out of our ownership in low-entry
markets — smaller markets where
we can’t get rate growth because it
wouldn’t make sense to renovate.
We will refurbish and we will
continue to invest. We believe
in city-centre assets…we have
two listed for sale right now. We
will deploy that capital in both
refurbishing and acquisitions. We
believe in the Canadian landscape.
Hotelier: What does the next year
look like from a financing point of
view? Is there still a lot of good
growth for Canada?
Khediguian: Yes, but there is
probably going to be a tightening
on the larger transactions. Most of
the market is either small transactions or mid-market. I feel positive,
from a financial perspective, about
how things will shake out.
Gallagher: We’ll continue to see
capital come into the hotel space.
You’ve got professional operators,
you’ve got great transparency and
you’ve got driven-down Cap rates
that are almost ridiculous... If you
look at the U.S., all of the major
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real-estate investors have hotels
as an asset class they invest in but
it’s not quite there yet in Canada.
If you are a pure hotel investor,
typically you also look at other
real-estate investments to diversify
yourself, not just geographically, but
for profits. So it’s encouraging. We’ll
continue to see that over the next
couple of years. It’s new money into
the industry, maybe new money
into Canada.
— that’s a big push in Montreal,
Toronto and some secondary
markets like Hamilton — where
hotels are going out of the market.
The mentality out there is Canada
is in good shape, financially. We’re
comfortable, we’re not busting.
People are looking at two to three
years to get development up and
running... That means that the
mentality out there is for sustained
growth — it’s not going to be crazy,
it’s going to be consistent.
Saplys: The hotel market is going
to be strong because we’re seeing
a huge influx in a client base that
is doing repositioning of product.
Those rooms are the same rooms
that have always been in the
market, so that sense of growth is
going to stay. There’s a lot of good
buildings with good bones out there
that are being repositioned. What
hasn’t been touched on is the fact
that there’s a huge repositioning of
older product that’s going to retirement homes and student housing
Delta, Winnipeg
Hotelier: What are rates like these days?
and a half per cent and Vancouver
is seven per cent. That’s all driven
by ADR. There’s tremendous
opportunity. Downtown Vancouver is going to run at 77-per-cent
occupancy — that’s seven per cent
RevPAR growth — and they can
do better than that. In those major
markets, the upper-upscale assets
are going to take the leadership
position and we are looking at
ADR growth in some of the luxury
assets of $40 to $45. It’s product,
but it’s service levels and customer
experience. We’re awash in capital.
What we need is more growth in
the economy.
Larone: Look at the major markets
— Montreal, Ottawa, Niagara Falls,
Toronto and Vancouver; Niagara
Falls is at 70 per cent occupancy;
RevPAR growth in Niagara Falls
was 16 per cent and will be probably be at least 10 per cent this year.
We are looking at RevPAR growth
of six per cent in Montreal, Ottawa
is five or six per cent, Toronto is six
Hyatt Regency, Vancouver
Hotelier: How do global factors
influence the Canadian market?
Are we insulated to some degree?
Khediguian: Our biggest risk is
probably ourselves — our current
deficit. We’re going to see an
increasing tax environment for
upper-middle class plus increased
Hotel, Saskatchewan
InnVest REIT holds one of Canada’s largest hotel portfolios together with a 50% interest in Choice
Hotels Inc., one of the largest franchisors of hotels in Canada. InnVest’s portfolio currently comprises
of 109 hotel properties, with approximately 14,500 rooms, operated under internationally recognized
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spend — government is not
always the best spender of capital.
So depending on that impact,
plus where the U.S. is in terms of
its economic cycle, it will have
an impact on our capital markets
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Cohen: The higher dollar/weaker
dollar on our side is actually
better — certainly in the bigger
markets for travel and tourism.
But we don’t promote ourselves
enough and we just haven’t had
that perfect storm of pushing
rates, telling people how great
we are as a country, what great
product we have. Now it’s a good
a deal. So people are coming, but
when the deals dry up, they don’t
come — but then business comes
back, so it’s a little bit of give-andtake and hopefully we can figure
a way to package it all together. u
EDITOR’S NOTE: While mergers
and acquisitions came into the
roundtable discussion, because the
Starwood and Marriott deal had
not been consummated at the time
of the Investment Roundtable, the
representatives from Starwood
Hotels & Resorts didn’t wish to
comment heavily on the deal. A
few days later, news hit that the
Starwood and Marriott merger had
been finalized. Similarly, a few days
after our discussion, GE Capital’s
Canadian Franchise Finance
business was sold to Canadian
Western Bank.
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2016 HOTEL
INVESTMENT
REPORT
INVESTMENT REPORT
TAKING STOCK
Buoyed by strong prices and increased interest from buyers,
2015 was a healthy year for hotel investment volume
BY CBRE HOTELS CANADA
ILLLUSTRATION BY JEM SULLIVAN
T
he hotel investment market
continues to build
momentum as we
enter the second
quarter of 2016 and looks to
extend what has been one of
the most impressive investment
cycles in history.
Hotel transaction volume
totaled $2.3 billion in 2015, an
all-time high when you exclude
the M&A activity that occurred
in 2006/’07. Regardless of how you
look at it, 2015’s volume was well
above the $1.4 billion reported in
2014. The average price per room
was reported at approximately
$115,000, up 15 per cent over the
prior year as well.
Sellers looking to capitalize on strong pricing a nd
buyers looking for stable assets
with healthy returns spurred a
number of landmark hotel sales,
which drove up hotel investment volume and APR. The top five deals totalled
more than $1 billion, half the volume for the entire
year. These sales included the Fortis Properties’
22-hotel portfolio ($365 million), the 511-room
Westin Bayshore ($280 million), the 1,363-room
Fairmont Royal York ($186 million), the 556-room
Fairmont Hotel Vancouver (confidential pricing)
and the 575-room Courtyard Toronto Downtown
($99 million).
Despite a major rebalancing of the national
economy, transaction volume was almost equally
split on a regional basis between Western Canada
(45 per cent) and Central Canada (47 per cent), with
Eastern Canadian hotel transactions accounting for
the remainder of activity. In terms of price per room,
Western Canada surpassed the rest of Canada with
a $180,000 average, followed by Central Canada at
$90,000 and Eastern Canada at $75,000.
Given the challenging market conditions in
Alberta, it’s not surprising that British Columbia
accounted for 62 per cent of investment volume
in Western Canada. Alberta did report more than
MAY 2016 HOTELIER
25
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Q1 2016 CANADIAN CAP RATE SURVEY
Vancouver
Hotel
Downtown Full-Service
Hotel
Suburban Limited-Service
Hotel
Focused-Service
Downtown Office
AA
Industrial
A
Retail
Regional
Apartment
High Rise A
NOTE: Calgary
Edmonton
Winnipeg
Toronto
Ottawa
Montreal
Halifax
6.00-7.00%
7.75-8.75%
7.75-8.75%
8.00-9.00%
6.00-7.00%
7.00-8.00%
7.50-8.50%
8.75-9.75%
7.00-8.00%
9.25-10.25%
10.00-10.50%
9.50-10.50%
7.00-8.50%
8.25-9.00%
9.00-10.00%
9.50-10.50%
7.00-8.00%
8.25-9.25%
9.00-10.00%
8.00-8.75%
7.00-8.00%
7.50-8.50%
8.00-8.75%
8.25-9.50%
4.00-4.50%
5.25-5.75%
5.50-6.00%
n/a
4.25-4.75%
5.00-5.75%
4.75-5.50%
n/a
4.75-5.50%
5.50-6.00%
5.50-6.00%
6.00-6.50%
5.00-5.50%
6.00-6.25%
5.75-6.50%
6.50-7.00%
4.50-5.00%
5.00-5.50%
5.00-5.50%
5.50-6.00%
4.50-5.50%
5.00-5.75%
5.00-5.75%
5.50-6.00%
3.50-4.00%
4.50-5.00%
4.50-5.00%
n/a
3.25-4.00%
3.75-4.50%
4.50-5.00%
4.75-5.25%
DECLINE FROM PREVIOUS QUARTER
INCREASE FROM PREVIOUS QUARTER
$275 million in transactions, most notably the 248-room
International Hotel Suites Calgary, which sold late in
the year to a non-traditional hotel buyer with a long-term
investment horizon and undeterred by current economic
volatility. Greater Vancouver had a particularly active
year, with a number of high-profile hotels trading hands,
including the previously highlighted Westin Bayshore and
Fairmont Hotel Vancouver. The 143-room Best Western
Plus Chateau Granville Hotel & Suites and 18-room
Viva Suites Vancouver were purchased by CIBT Education Group, a publicly traded company, for conversion
to student residences. They were purchased for $38.5
million and $37 million respectively, including renovation
costs. These deals demonstrate the premium being paid
for downtown Vancouver real estate. B.C. is expected to
support Western Canada’s hotel investment metrics in
financial spite of Alberta’s ongoing difficulties.
Ontario was the most active Canadian market for hotel
investment with more than $900 million in transactions
spread over 60 deals. Rounding out Central Canada,
Quebec reported transaction volume of $160 million, with
15 hotels trading and more than $100 million transacting
in Montreal. The Greater
Toronto 2:04
AreaPM(GTA) continued
S6_FranAds_Hotelier.pdf
1
2016-01-07
its run of impressive performances, which started in 2013,
NO CHANGE FROM PREVIOUS QUARTER
SOURCE: CBRE LIMITED
accounting for 30 per cent of national hotel investment
volume. The dominance of the GTA and Central Canada
is likely to continue into 2016, with seven hotels transacting in the GTA as of Q1.
Eastern Canada had a strong year largely due to the
Fortis Properties portfolio sale, which included 1,790
rooms in eight hotels across each province except Prince
Edward Island. Overall, Eastern Canada represented
approximately eight per cent of total hotel-investment
volume, up from four per cent the previous year.
While there is no shortage of market participants
looking to increase their allocation to Canadian hotels,
private capital remained dominant in 2015, accounting
for 80 per cent of total hotel investment volume. Public
companies/REITs accounted for 14 per cent of transactions and equity funds rounded out the remaining seven
per cent.
One particular area of investor interest was in purchasing hotels for conversion to alternate uses or future
redevelopment. In some instances, buyers were willing
to pay a premium for these assets. Hotels acquired for
alternate use included the 342-room Best Western
Primrose in Toronto ($50.5 million) which, along with
the Viva Suites and Best Western Plus in Vancouver, was
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converted to a student residence; and while the Westin
Bayshore will remain an operating hotel in the short
term, it is expected to be repurposed or redeveloped in
the future for multi-residential purposes. This trend is
expected to continue, as seen with the recent announcement of plans for a residential redevelopment at the
Courtyard by Marriott Toronto Downtown site, which
was purchased by InnVest and KingSett in August 2015.
There continues to be a growing amount of U.S. and
offshore interest in Canadian hotel investment, but this
represents a small portion of the investor market. In 2015,
approximately $200 million, or nine per cent of transaction
volume stemmed from non-domestic buyers. This includes
acquisitions such as the 384-room Westin Prince ($70
million/$182,000 per room) and 204-room Delta Markham
($28 million/$137,000 per room), acquired by separate
private investors with capital stemming from Asia.
Similar to the buy-side, private investors and private
equity groups also dominated as sellers, although to a
lesser degree. Private sellers accounted for 43 per cent of
transaction volume, followed by public companies/REITs
with 23 per cent of sales volume, which was primarily
comprised of the Fortis Properties portfolio sale as well
as InnVest REIT’s continued disposition of non-strategic
assets. Institutional/pension fund sellers accounted for
approximately $420 million in transactions or 18 per cent
of total volume, with equity funds close behind at 13 per
cent. Only two per cent of transaction volume related to
receivership or lender driven sales.
A number of U.S. private equity firms and REITs,
including Blackstone, Starwood Capital Group and Host
Hotels & Resorts, were sellers in 2015, although the
majority of transactions were completed by domestic
sellers to domestic buyers.
In 2015, strong investor demand created downward
pressure on hotel Cap rates in Vancouver, Toronto and,
to some degree, Montreal. In Alberta, Saskatchewan and
other resource-dependent markets, declining hotel cash
flows tempered Cap rate increases as investors looked
towards revised, more moderate performance levels. Hotel
Cap rates stabilized in Q1 2016.
Last year will be remembered for offering the most
diverse range of available product in recent memory and
enticing a deep and dynamic buyer pool. Expect this level
of activity and demand for all types of hotels to remain
strong in 2016, with transaction volume likely to be
maintained near record levels. u
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INVESTMENT REPORT
PAVING THE ROAD
TO SUCCESS
With the exception of energy-dependent regions, 2016 should be a good year
STORY BY COLLIERS HOTELS INTERNATIONAL
T
he Ca nadia n
hotel real-estate
market continued its upward
t r ajector y i n
2015, finishing its sixth year in
the current upcycle and bringing combined total transaction volume to more than $9
billion. It was a year of recordsetting volumes; the highest
since 2007 and the third
highest in history at $2.47
billion in sales.
This coming year is poised
to witness a similarly positive
trend. With the exception of
energy-dependent regions, the
overall market is expected to
experience continued trading
momentum. Resilient conditions in major markets such
as Vancouver and Toronto,
i ncrea si ng i nterest f rom
foreign investors and dynamic
debt-capital participation will shape the investment environment. Several banner transactions
have occurred in the first quarter of 2016, including
the $115-million purchase of the 189-key Marriott
Ottawa by InnVest REIT in February and a flurry of
select-service hotels trading in suburban locations,
primarily in the Greater Toronto Area.
Colliers’ recently released 2016 Canadian Hotel
Investment Report includes a special feature on
views collected from several of Canada’s largest
hotel real-estate participants. Generally speaking, industry participants remain bullish on the
market (with cautious optimism being placed
in energy-dependent markets), particularly
MAY 2016 HOTELIER
31
given the broad cross-section of capital-seeking hospitality assets in the market today, as well as Canada’s
high ranking as an attractive country for drawing
inter national investment. The most significant
motive for deals to transpire in 2016 are attractive
cash returns with regard to Cap rates and interest rates.
The following is a glimpse into current viewpoints of
Canada’s most significant hotel participants.
NATIONAL MARKET UPDATE
There continues to be good investment opportunities with
a healthy mix of investors in the current landscape, which
attracts a variety of different product given various investment and exit perspectives. Institutional capital is largely
focused on urban, full-service assets in core markets for
longer-term holds and would place money in key assets if
the opportunities are right. While private investors and
hotel-investment companies are also targeting Canada’s
top markets, they are also less risk-averse to investing in
smaller markets — subject to proper due diligence on
timing the market, picking the right product positioning
and taking advantage of the current cost of capital.
INVESTORS IN TODAY’S MARKET ARE METHODICALLY MAKING THEIR MOVES TO SOLIDIFY THEIR PORTFOLIOS IN ORDER TO TAKE ADVANTAGE OF UPSIDE AND MITIGATE THREATS
Portfolio diversity matters more than ever. This premise
has evolved into a golden rule for both small and larger
investors in order to spread risk and exposure over the
long-run. The majority of participants cited the benefits
of having properties in multiple geographic regions to help
offset turmoil which can arise in markets/regions dominated by only a few core industries.
Investing in larger urban markets has the obvious advantage of reduced volatility, given more diversified economies,
but, on the flipside, several smaller markets have seen such
tremendous gains in the current cycle that these can often
override losses — so long as the investor can weather the
storm. Several groups cited that diversity into other realestate asset classes also significantly helps their overall
portfolio returns, particularly when the economy turns and
the hotel market often sees larger declines than other asset
types, such as office and multi-residential.
Currency trends are going to fare well for the market
from both an operational as well as investment perspective. As one of the world’s top destinations, Canada
continues to increase its awareness on a global scale for
attracting individual travellers as well as group and tour
business. There are significant benefits from the efforts of
32
MAY 2016 HOTELIER
SEVEN TOP TRENDS FOR 2016
CONTINUED MOMENTUM IN TRANSACTION ACTIVITY
Following several high-water mark years, overall
transaction volume in 2016 should be in line
with average volume seen in the current cycle,
indicative of healthy market fundamentals.
FOREIGN GROUPS TO AGGRESSIVELY
BID ON HOSPITALITY ASSETS
Depending on product availability, Canada will
continue to pique the interest of foreign investors attracted to the country’s stability, with the
exchange rate being a significant advantage in
boosting purchasing power for many global
currencies.
DYNAMIC DEBT MARKETS
There is a growing availability of debt capital
across the board, fuelled, in part, by new financing entrants eager to place funds in the hospitality asset class. In addition to growth in providers,
record low bond yields will continue to support
the transaction environment.
ALL EYES ON ENERGY DEPENDENT MARKETS
Weak oil, metal and other commodity prices are
anticipated to continue throughout 2016 and
into 2017. An increase in distress-driven sales
may materialize in certain markets, particularly
secondary and tertiary markets heavily reliant on
commodity extraction.
CONTINUATION OF INDUSTRY CONSOLIDATION
Big headline mergers and industry consolidation news were in abundance in 2015 and will
continue in 2016. With large consolidation of
parent companies, this will undoubtedly lead to
increased competition and a run to secure market share. However, the impact will be predominately on a global scale rather than domestically.
CONTINUED IMPROVEMENT IN
OPERATING PERFORMANCE
Domestic tourism is poised for continued strong
growth and generally has a positive impact on
operating performance. Major markets, border
cities and other seasonal and resort markets
should greatly benefit from currency trends.
AIRBNB IMPACTS MAJOR MARKET LODGING DEMAND
The popularity of Airbnb and other hotel-alternative services could begin to impact lodging
demand in major markets around the world. As a
result, we will continue to hear increased discussion and conversation on these services as a
threat to the traditional lodging industry.
Colliers’ 2016 Canadian Hotel Investment Report
can be downloaded at www.colliershotels.com.
Destination Canada, the government agency responsible
for marketing Canadian travel, and the low dollar means
continued positive results in key markets across the country
are anticipated. Cross-border investors are also increasingly
looking at acquisition opportunities, although their investment criteria are largely focused on major-market urban
projects, of which there is limited availability. These are
typically met with increased competition from well-capitalized domestic capital sources.
Industry disruptors are top of mind. Fresh off the previous decade-long battle with online travel agencies (OTAs),
innovations such as Airbnb are rapidly transforming the
way travellers book their accommodations. While these
innovations provide some benefit to the consumer, it has
yet to be determined what impact these alternative distribution channels will have on traditional hotel performance.
For the most part, asset owners in secondary and tertiary
markets do not see this as a major threat. The fundamental
challenge is that this channel is not properly monitored
and regulated.
Continued operational improvements are on the horizon
from a top-line perspective, but there is more room to
improve the bottom line. The recent rebound in hightorque markets such as Vancouver, Toronto and Alberta
Mountain Resorts, is a great success story from a top-line
perspective. Optimism abounds for further improvements
in these key markets, given economic forecasts as well as
currency benefits in the short to medium term. Another
key component to top-line growth is the significant investment of capital into older product. This allows for healthy
rate gains, as well as a reduction in supply as conversions of
hotels to alternative use continues. The increase in top-line
(particularly with rate growth) translates to increased
bottom-line flow-through and profitability. However, many
participants believe there is still room to increase rates —
which is particularly crucial given increased operating costs
can outpace revenue growth. In order to improve profitability, owners are continuously evaluating their cost structure
including key items such as labour, property taxes and other
operating expenses.
Investors in today’s market are methodically making their
moves to solidify their portfolios in order to take advantage
of upside and mitigate threats. While, presently, there are
serious concerns with energy-linked markets, Canadian
hotel investors are generally well capitalized and, for the
most part, geographically diversified. The current sentiment
is one of cautious optimism. But, positive industry characteristics are overshadowing near-term concerns with major
hotel real-estate owners in regards to long-term opportunities and returns. u
Robin McLuskie is VP of Colliers International Hotels and
works on a national team responsible for hotel investment
advisory services across Canada and specific markets in
the Caribbean. She is responsible for business development,
brokerage and debt placement, with a particular focus on
client management.
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INVESTMENT REPORT
STRENGTH
IN NUMBERS
As the hotel industry faces disruption from the likes of OTAs and new
innovations, traditional hotel companies are consolidating to stay competitive
BY CAROL NESHEVICH
I
t’s no secret that the
global hotel industry is currently in
a state of flux. As
online travel agencies (OTAs) such as Expedia
and other industry disruptors
such as Airbnb continue to
shift the industry landscape
in ways we could not forsee,
traditional hotel companies
are increasingly moving to
consolidate in an effort to
remain competitive.
In the past year or so
alone, significant mergers and acquisitions made
headlines. Last April, for
instance, Bethesda, Md.based Marriott International,
Inc. acquired Toronto-based Delta Hotels and
Resorts. The $170-million transaction helped
Marriott beef up its Canadian portfolio by adding
37 properties and nearly 10,000 rooms in more than
30 cities across the country. The transaction also
increased Marriott’s distribution in Canada to more
than 120 hotels and 27,000 rooms.
Then, in late December 2015, Paris-based
AccorHotels announced its intention to purchase
FRHI Hotels & Resorts, the parent company of
three iconic hotel brands — Fairmont, Raffles and
Swissôtel — in an effort to create a worldwide luxury
hotel giant. It signed the agreement with the Qatar
Investment Authority, Kingdom Holding Company
MAY 2016 HOTELIER
35
of Saudi Arabia and Oxford Properties, an Ontario
Municipal Employees Retirement System (OMERS) company, last December in a deal worth approximately $2.9 billion U.S. in cash and shares. The deal will add 155 hotels
and resorts (40 are currently under development) and more
than 56,000 rooms worldwide to Accor’s portfolio, which
operates Ibis, Sofitel and Novotel, among others.
Perhaps the biggest acquisition news in recent months is
Marriott’s deal to acquire Stamford, Conn.-based Starwood
Hotels & Resorts Worldwide. The story began in late 2015
when Marriott offered to acquire Starwood for $12.2 billion. Things took a dramatic turn in March, as the previously agreed-upon deal was overturned by China’s Anbang
Insurance’s offer of $13.2 billion, or $78 per share in cash.
Starwood accepted Anbang’s offer, but Marriott struck
back just days later with a higher offer, valuing Starwood at
$77.94 per Starwood share or $13.3 billion. When Anbang
suddendly withdrew its bid, Starwood accepted Marriott’s
sweetened deal, creating the world’s largest hotel company
with more than 1.1 million rooms in 5,500 hotels worldwide and more than 30 brands.
Dramatic M&A activity aside, the real question is
whether consolidation is financially benefical for the hotel
industry. For the most part, the answer is yes, according
to industry insiders. “As the companies get larger, they’ll
generate substantial economies of scale when it comes to
purchase agreements with suppliers, as well as more of a
balance of power in dealing with the larger OTAs like the
Expedias of the world, which are trying to eat into their
distribution margins,” says Edward Khediguian, Montrealbased SVP of Franchise Finance at GE Capital Canada.
“The brands almost have to get bigger.”
Bill Stone, EVP at CBRE Hotels Canada in Toronto,
agrees. “You have the disruptors out there, like the Airbnbs
... and just having a larger base to draw on helps you, to
some degree to compete against them.”
From this perspective, the ability to combine loyalty
programs may be one of the most practical benefits of conconsolidation. “I think loyalty programs will be more
AS THE COMPANIES GET LARGER,
THEY’LL GENERATE SUBSTANTIAL
ECONOMIES OF SCALE WHEN IT COMES TO PURCHASE AGREEMENTS WITH SUPPLIERS, AS WELL AS MORE OF A BALANCE OF POWER IN DEALING WITH THE LARGER OTAs
important,” says Khediguian. “So the big brands, as they
consolidate, will go ‘best in class’ in terms of what’s the best
loyalty program among all the brands that they’ve consolidated, and then drive better quality, incentive-driven loyalties that are CRM (customer relationship management)
based, such as knowing your customers’ travel patterns,
interests and feedback. That will be one of the key pillars
of what will make consolidation relevant.”
Douglas Quinby, VP of Research at the U.S.-based tourism, travel and hospitality research firm Phocuswright,
concurs. “The aggregate entity of a Marriott and Starwood,
or the Accors and Fairmonts, has the ability to offer that
much more inventory to loyalty program members. And
that’s especially important as hotel companies try to compete with online travel agencies in particular,” he says.
“The reason why consumers go to OTAs is they’ve got
everything under one umbrella. You can see everything,
you can compare everything and you can see all the prices
and options.” But, by forming a mega-conglomerate offering a wide breadth of brand variety in varying categories
that will also reward clients for being loyal, he says, you
can offer something that will give the OTAs a run for
their money.
As Quinby explains, travellers no longer fit into a singular profile — the exact same person will often choose
different categories of accommodation depending on their
current need. For instance, someone may choose a midscale brand when travelling on business, an economy
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brand when travelling with their family on vacation, and from branded franchised product.” With the proliferathey may splurge on a high-end luxury brand for an anni- tion of OTAs and the increased power of online reviews
versary celebration weekend with their spouse. “So, the (“People are actually listening to online reviews now,” says
more inventory, the more options, the more rates, the more Khediguian), the power of a known and trusted brand may
prices that [a hotel company] can offer to travellers already no longer go as far as it used to. So a hotelier who builds up
within its hold and loyalty program, who it can market to stellar online reviews may actually be able to compete just
as well as an independent if they decide they don’t like the
directly, the better its marketplace advantage,” he says.
Loyalty programs aside, another benefit of consolida- terms of the franchisor. As Khediguian notes, consolidation will likely “give the disaggregation includes the traditional upside
tors a run for their money, but the
which would occur with an acquisiPEOPLE ARE disaggregators won’t go away.”
tion in any industry: cost savings
One thing experts seem to agree
due to operational efficiencies. This,
ACTUALLY LISTENING on is that there will be more mergers,
of course, is likely to drive profits
TO THOSE ONLINE
acquisitions and overall consolidaand have a positive impact for shareREVIEWS NOW.
tion in the hotel industry in the
holders. “If you acquire a company
coming months. “It is going to hapand there are operating efficiencies
— because you don’t have to duplicate certain functions pen,” says Stone. “It is all about consolidation right now,
— there are going to be savings,” says CBRE’s Stone. “So, especially at the brand level. We do anticipate others in the
I think there are definitely going to be some benefits there, next 12 to 24 months.” Quinby adds that he expects some
of the smaller brands out there are certain to be feeling the
particularly for the company doing the acquiring.”
Interestingly, Khediguian speculates on another poten- pressure to merge, and he wouldn’t be surprised if there are
tially unexpected side effect of consolidation — individual talks going on among brands like Hyatt, Hilton, Choice
hotel owners who simply decide to forego brands altogether. or Wyndham right now. “I can’t imagine that all of these
As the brand-holding franchisors get larger through con- folks aren’t talking to each other and looking at potential
solidation, “they’ll be able to dictate terms a little bit transactions,” he says. “It’s going to be very difficult for
more heavily,” he says. “But if that’s pushed too far, then them to compete with the economies of scale of a Marriott/
[property] owners may go the other way and move away Starwood tie-up.” u
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38
MAY 2016 HOTELIER
Newsblast_QV.indd 1
2015-08-11 3:42 PM
INVESTMENT REPORT
WESTERN WOES
Hoteliers are looking at the bright side of a challenging
situation in parts of Western Canada
STORY BY JACKIE SLOAT-SPENCER
I
t’s been a rough year
for C a n a d a’s hotel
industry, as its members
watched the price of oil
drop to staggering lows.
Energy-producing provinces,
such as Alberta, Saskatchewan
and Labrador bore the brunt of
the decline and the Canadian
dollar slipped to its lowest level
in 13 years.
“We were the poster child for
hotel development,” says Dave
Kaiser, president and CEO of
the Calgar y-based Alberta
Hotel & Lodging Association
(AHLA), which represents
about 880 hotels, motels and
resorts across the province.
“For quite a few years we were
leading in RevPAR. A lot of
development was in secondary and tertiary markets
and had one economic driver — that was the
energy sector — and without that driver, the activity just falls off.”
Indeed, Alberta and Saskatchewan have suffered
declines in demand, and as its markets attempted to
absorb the abundance of supply, there were serious
repercussions for occupancy and ADR. According
to CBRE figures, in Alberta, occupancy dipped from
68 per cent in 2014 to 59 per cent in 2015 and is
forecast to slide even lower to 54 per cent in 2016.
Saskatchewan fared slightly better, with occupancy
dropping from 64 per cent in 2014 to 59 per cent in
2015, to 57 per cent this year. Meanwhile, ADR in
Alberta is expected to land at $137 this year, down
from $140 in 2015, while Saskatchewan’s ADR is
forecast to stay the same at $132.
“In Western Canada, over-supply is a big issue in
MAY 2016 HOTELIER
39
some of these oil- and gas-specific markets,” agrees Nigel
Lucas, VP, Franchising & Development at Superior Lodging
Corp. “The amount of supply that’s come online at Calgary
Airport is staggering. There’s still a question mark around
whether it can absorb the amount of supply that’s come
online in the past year.”
In Alberta, supply grew by three per cent while demand
declined 11 per cent in 2015; this year, supply growth is
forecast to remain the same, while demand will drop by
six per cent, according to CBRE figures. In 2015, supply in
Saskatchewan grew by six per cent while demand dropped
by three per cent; this year, supply is forecast to grow by
six per cent while demand will only grow by two per cent.
“Other markets like Kindersley, Weyburn, Estevan —
these were markets that were really hot for two to three
years in oil and gas. Now, as that market has gone down,
you’re seeing some are going into receivership and some
are just selling the debt to try to get out of those properties,” Lucas adds.
Meanwhile, the team at Superior Lodging Corp. is shifting its attention away from parts of Western Canada as it
focuses on expanding the Travelodge brand, among others,
across Canada. “We just opened in Fort St. John [B.C.] and
that one seems to be holding strong. Kitimat, B.C. is doing
okay as well, but in Alberta we certainly feel the pressure
right now from the economy,” Lucas says. So far, the team
has added nearly 1,000 net new rooms and is on track to add
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another 1,000 to 1,400 rooms this year. Moving forward, his
team will shift its focus away from Alberta to secondary and
tertiary markets such as Thunder Bay, Ont., Sudbury, Ont.
and various cities in Eastern Canada.
Airline Hotels, which owns and operates nine hotels in
cities which include Edmonton, Saskatoon and Regina, is
combating the market challenges by focusing on improving its guest experience. “Coming out of last year we had
system-wide declines in occupancy and that was due to
imbalances in supply and demand that were going on in
Saskatoon and Regina,” explains Jaret Waddell, COO. “The
good news is we’ve not only maintained, but strengthened
our competitive RevPAR position in all four properties in
Saskatchewan and grown the consolidated RevPAR index
at the four properties above 110,” he adds.
“Though the market per formance was really a
system[wide] issue, from a competitive standpoint we’ve
done well and have put a significant amount of time, energy
and focus into enhancing the areas of the business that are
the most significant in the minds of guests, which really
are service and cleanliness.” Waddell’s team began using
Revinate, a hotel software, to help measure guest satisfaction by capturing online reviews and social-media mentions
into a single, integrated view. That helped them analyze
perceptions of value, cleanliness and service which are
generating feedback. “That’s where we’re going to put our
time and energy,” he sums up.
THANKS TO A LOWER CANADIAN
DOLLAR, THE INBOUND LEISURE
TRAVEL FORECAST IS EXPECTED TO
GROW THIS YEAR AS AMERICANS
LOOK NORTH TO STRETCH THEIR
TRAVEL FUNDS FURTHER
However, the problems in Western Canada don’t worry
Bill Hanley, president of International Development for
Vantage Hospitality, based in Richmond, Va. “We’re bullish
on Canada. Aside from Alberta, the rest of Canada is doing
quite well. And that’s also true in our business, where virtually all the provinces, with the exception of Alberta, outperformed 2014 and 2015 and they’re expecting the same thing
to hold true this year.”
Hanley’s company is not looking to halt development in
Western Canada or in the rest of the country, as evidenced
by a newly converted Canadas Best Value Inn-Calgary
Chinook Station, formerly a Howard Johnson Express. “In
Western Canada right now we’ve got Dawson Creek, B.C.,
Fernie and Fort Nelson that we’re working on. We’ve got
projects in Sudbury, Cornwall, Barrie, Orangeville and
Toronto so we’ve got a nice pipeline — and we just coincidentally signed a second hotel in Calgary, a former Howard
Johnson. Even though Alberta may be down, there is still
opportunity for us.”
Despite challenges with occupancy, there are still several positive developments in the works. Developers are
managing to save on construction costs, thanks to an
abundance of cheap labour. “We’re currently in the process
of rebuilding our Microtel in Fort McMurray and when
we re-tendered it, there was a 10- to 20-per-cent savings in
construction costs,” Lucas adds. Thanks to a lower Canadian dollar, the inbound leisure travel forecast is expected
to grow this year as Americans look north to stretch their
travel funds further. Hainan Airlines recently announced
it will offer direct service between YYC and Beijing beginning June 30, which will bring a slew of Chinese tourists to
Calgary. And, while the groups may be steered towards the
resort provinces, hoteliers are preparing to host the spillover
to the other hotel segments.
Waddell remains optimistic, as he believes history is
repeating itself: “Between 1999 and 2001 there was an
18-per-cent supply increase in Saskatoon at the time when
the economy of the province wasn’t nearly as diversified as it
is now ... it was about a five-year recovery.”
For Edmonton, the fundamentals are different, where the
city is dealing with a softening demand at the same time
hoteliers are absorbing the supply increases. “If you look back
into those cycles, like December of 1998 with $11 oil, there’s
always recovery,” he says. “It’s just a question of when. There’s
only so many things you can do and control.” u
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by an affiliate of the company. © 2016 Wyndham Hotel Group, LLC. All rights reserved.
INVESTMENT REPORT
KEEPING IT FRESH
Operators continue to invest in capital expenditures
to keep on top of a competitive market
STORY BY DANIELLE SCHALK
W
hether
driven
by brand
requirements or
an opportunity to increase sales
and create a return on investment
(ROI), capital expenditures are an
integral part of doing business in
the hotel industry — perpetuating the old adage that you have to
spend money to make money.
In 2015, Wi n n ip eg-b a s e d
Temple Hotels REIT invested in
major hotel renovation programs
at several properties across the
country, amounting to capital
expenditures (CapEx) of $18.7
million for the year. “We don’t
mind spending the money,” says
Ar ni Thorsteinson, CEO of
Temple. “It’s all about ROI.”
Over the course of the last
two-and-a-half years, Temple has
invested approximately $12 million refreshing the
Saskatoon Inn (and Conference Centre) in Saskatoon, Sask. The property now boasts refurbished
common areas and guestrooms, as well as new guest
elevators. The revamped guestrooms feature refinished bathrooms, contemporary furnishings and a
soothing, neutral colour palette.
With Temple’s portfolio up to date, Thorsteinson
and his team are looking forward to a significant
decrease in the company’s CapEx spending for 2016.
In many cases, CapEx is most dependent on the
age of a property. However, Thorsteinson warns
it’s hard to generalize, as a hotel’s occupancy levels
and the clientele moving through the property
MAY 2016 HOTELIER
43
also factor into how often and where money needs to be this method means improvements go largely unnoticed
spent to keep up the property. “If you have a property by guests. “The guest isn’t experiencing the fully done
with a lot of leisure business and sports teams, you get product and by the time you’re done your whole renovamore wear and tear than a hotel catering to primarily tion, you have to start again,” he adds.
business clientele,” he explains.
Capital improvement is not the only form of CapEx;
In order to prepare for the inevitable expense of hotel a topic commonly left out of the CapEx discussion is
upkeep, it’s important to maintain a CapEx reserve the addition of new hotel assets. Companies such as
fund. Setting aside approximately three per cent of Calgary-based Superior Lodging Corp. have been investannual revenue for repairs and renovations is the indus- ing significant capital in the development of new propertry standard in Canada, while south of the border, ties, including a Microtel in Bonnyville, Alta. and the
Jeff Crowley, SVP at HVS Hotel Asset Management, dual-branded Courtyard by Marriott and Residence Inn by
recommends reserving six per cent each year in order to Marriott, Calgary South, which opened in January 2016
adequately prepare for major/hard goods renovations.
and December 2015 respectively.
At the Nova Scotia-based Holloway Lodging, the
Using the Microtel brand as an example, Marc Staniloff,
amount set aside for restoration and renovations varies president and CEO of Superior Lodging Corp., estimates
based on a property’s age. “If it’s a newer hotel, we set aside the cost of developing a new hotel at $110,000 to $140,000
about three per cent [per year]; on an older hotel it will be per room, noting the cost varies based on where you build
closer to four per cent,” explains Michael Rapps, chairman in Canada.
of Holloway.
Superior has also taken on capital improvement
Holloway is currently in the midst
project s, for which it allocates
of a high-Capex period as it rebrands
approximately three per cent of
several of its properties, including
annual gross revenues. One such
YOU HAVE the recently reopened Holiday Inn
project was the major renovation of
TO KEEP RELEVANT,
Ottawa East, which cost more than
a 20 year-old Super 8 in Timmins,
BECAUSE YOUR
$10 million to convert from the
Ont., which cashed in at approxiCOMPETITION WILL
former Chimo Hotel.
mately $7,000 per room.
As a n older str ucture, bra ndWhen tackling a major refresh,
EAT YOU UP mandated health-and-safety upgrades
Staniloff focuses on the major guest
IF YOU DON’T
factored significantly into the propertouch points. “You sell the room in
ty’s conversion process. “There was a
the lobby, so it’s important to spend
lot of work that needed to be done that did not impact money there,” he says. Once the room is sold, the most
the guest experience directly,” says Rapps. This includ- important features become “the bed, the shower and the
ed significant additions to the hotel’s sprinkler system. TV experience — that’s what they remember.”
Rapps warns that aging properties may hold unforeIn a down economy, it’s increasingly important to
seen challenges and expenses. “There are a lot of things ensure properties are up to date in order to capture
you can find once you open up the walls,” he explains. market share. “When times are difficult, that’s when you
“Managing that unknown when you’re working on a want to make sure your property is up to standard or
budget or timeline is very difficult.”
better to beat the competition,” Staniloff explains.
When doing renovation projects, the Holloway team
That said, customer expectations continue to drive
prefers to shut down a property completely to expedite changes in brand standards, which raises the price tags on
the process. It does, however, make exceptions when Superior’s projects.
the property is too large for this strategy to be benefiThe slumping Canadian dollar has also increased costs
cial, such as the newly rebranded DoubleTree by Hilton as hoteliers take a hit on materials and equipment importin London, Ont. “It is a 24-storey, 325-room property; ed from the U.S. Holloway’s Rapps identifies HVAC
there was no way we could have done it quicker if we units, elevators and steel as key items that have increased
closed it,” says Rapps. “It was just too big of a project in price due to the declining loonie.
and it would have required too many people.” For the
Regardless of economic conditions, time marches on
remainder of its recent projects, Holloway opted to close and properties continue to age. As Thorsteinson points
the properties for several months during its individual out, customers will let you know when it’s time to refresh,
off-seasons to limit financial impact.
whether it’s through online reviews or at the front desk.
With regard to soft goods renovations, Holloway’s strat- However, it’s not ideal to let it reach this point.
egy is not quite as bold. The company tries to strike
Staniloff recommends using housekeeping staff as a
a balance between financial and guest impact. “There customer baseline to identify when a hotel starts showing
is always tension in our organization in doing things signs of wear. As he explains, the benefits of putting
over time versus doing them all at once,” says Rapps. money “back into the box” will be seen in the bottom
He explains that there is less impact on cash flow when line. “You have to keep relevant, because your competireplacing items such as carpet and bedding over time; but tion will eat you up if you don’t,” he says. u
44
MAY 2016 HOTELIER
INVESTMENT REPORT
DOLLARS AND SENSE
Coming off a strong year in 2015, Canada’s finance environment
offers a competitive landscape for investors
STORY BY AMY BOSTOCK
I
n to day’s operati ng
envi ron ment, lower
interest rates and availabilit y of debt a re
catalysts for hotel deals.
According to Drew Coles, president and CEO at InnVest REIT,
this is an unprecedented time
for lending capital availability
and interest rates for Canada’s
lodging sector.
“Lending requirements seem
to be a little less stringent than
in the past,” he says. “Overall,
Canadian hoteliers have been
very prudent in their leverage
ratios and lenders seem to be
attracted to the hotel space at
the moment. Requirements will
still be tighter than other realestate classes, but lenders are
seeing hotel portfolios perform.” Robin McLuskie, VP, Hotels
at Colliers International Hotels,
says the 2015 hotel finance
environment was very strong
— one of the strongest, in fact.
“From a hotel transaction point
of view, volume grew 70 per cent year-over-year, so
we saw almost 150 hotel trades across Canada [totalling] $2.47 billion. That’s the third highest since the
late ’80s and the highest we’ve seen in the current
[performance] cycle.”
McLuskie gives credit for this trend to Canada’s
finance environment, which she says boasts a strong
and competitive landscape for vendors.
Notable trades in 2015, says Marc-Aurele
Mailloux-Gagnon, director, Hotels at CBRE
Limitée, included Vancouver’s Royal York Westin
Bayshore, and the Fairmont Hotel Vancouver.
An increase in U.S. interest — thanks to both
the low dollar and cycle of performance — attracted
more lenders and better financing interest, explains
Mailloux-Gagnon. “For the hotel financing market,
generally speaking, financial conditions were very
fair in 2015, with the exception of Alberta and
Saskatchewan, which were impacted by declines
in the oil and gas sector. Most other regions —
especially B.C., Ontario and Quebec — have ample
sources of financing.”
MAY 2016 HOTELIER
45
Celebrating over 34
years providing fullservice renovations to the
hospitality industry.
But, Coles says the bigger impact remains on the fundamentals side, whereby the U.S. dollar’s strength can help
direct consumer demand into Canada, while keeping
domestic customers at home. “This dynamic has the attention of more domestic hotel investors than U.S.,” he says.
“We’re seeing more participation in the market from U.S.based lenders than we are from equity investors.”
So, where are foreign investors looking to park their
money? “Vancouver is number 1 followed by Toronto,” says
McLuskie, adding that investors will sometimes look outside
of those two major cities if land size and product type meet
their requirements.
In Quebec, Montreal has emerged as a strong market
as European interest there builds. “There were some hotel
closures in that market recently, but I think the overall
market fundamentals are strong in Montreal and Quebec
City,” says McLuskie.
Other parts of the country have also seen positive gains,
notes Mailloux-Gagnon. “The markets in B.C. and Ontario
have been performing well and will remain positive thanks
to strong tourism sectors in Vancouver and Toronto.”
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“Interest rates are difficult to predict right now,” says
Coles, noting the U.S. Federal Reserve has been slow
in its movement of rates, despite job creation and GDP
growth. “The Canadian economic outlook appears slightly
more buoyant than at the end of 2015, which could trigger
rate lifts, but likely not significantly. Inflation seems relatively
in check as well, so small interest rate movements will have a
small or insignificant impact on the industry and deal flow.”
McLuskie doesn’t see interest rates changing this year, but
says they are asset- and market-specific. “It depends on the
property that’s trading. If it’s in a prime urban market, you’re
going to see more competitive interest rates because there’s
more competition to lend.”
Cap rates are also expected to remain steady in 2016,
although there may be some slight compression if the
overall performance of the industry gains momentum by
the end of fiscal year. “Certain city-core assets may experience some compression and Alberta Cap rates may relax
slightly,” predicts Coles. “But overall, across the country, I
wouldn’t expect much movement. Northern Alberta has
likely experienced softening in Cap rates.”
Debt financing is also expected to remain competitive
throughout 2016 and into 2017, as hotel loan portfolios
continue to perform. “Operators are more sophisticated
today and the macro underlying fundamentals in Canada
seem to have volatility in check (except for northern
Alberta),” says Coles. “There seems to be an abundance of
debt capital looking for a home and U.S.-based lenders are
interested in Canada, which should keep the landscape in
competitive mode.”
WHO TO WATCH
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t 905.760.2979 f 905.760.2976 e Info@hclgroup.com
www.hclgroup.com
McLuskie recommends keeping an eye on domestic product
capital in coming months. “There’s a lot of wealth out there,
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MAY 2016 HOTELIER
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OTTAWA
In terms of trading volume, Coles say 2015 was “off the
peak in the 2006/2007 range by over $1 billion. However, it
was a significant jump over 2014 and the volume only had
one significant portfolio trade.” In other words, the volume
of trades was primarily driven by individual asset transactions, which is a very different profile from the peak volume
years. “Activity in trades for the right strategic reasons is
good for the industry and I suspect that will continue into
2016 and 2017.”
McLuskie agrees that 2015 was a banner year for transaction volume “and 2016 will be another strong year, but
it really depends on the pipeline and what’s out there in
terms of [available trades]. It’s a little too early in the year to
say whether we’ll be able to surpass [2015 numbers], but it’s
TORONTO
LOOKING FORWARD
going to be healthy market.”
With increased interest from foreign groups, Colliers has
been involved in a number of sales involving Asian buyers.
According to McLuskie, there hasn’t been a lot of U.S.
interest in the Canadian hotel market. “However, the realestate market in general has been increasing significantly.
The low loonie has offered a real cost advantage for foreign
buyers and we’ll likely see more of that. The real message is
it’s a reflection of what product is out there — U.S. [investors] generally want prime cities and urban markets; they
aren’t interested in our secondary or tertiary markets.”
Moving forward, McLuskie identifies some of the main
financing challenges for the hotel sector. “Lenders are really
focused on TTM (trailing 12 months), so to get them to
look at performer numbers is a bit tougher and that can be a
challenge depending on how the asset is performing.”
Overall, underwriting remains stringent. “Compared to
other economies, Canada has a very low, more conservative leverage and debt. That hasn’t really changed, and
won’t change, so investors can’t expect to see high leverage — it’s going to be in the 55 to 65 per cent LTV (loanto-value) range.”
Although there’s still a lot of capital out there, Alberta
and some other parts of the country continue to suffer from
low-trade volume. “People are currently holding in those
markets and you aren’t going to see a lot of trades,” says
McLuskie. “[We] just have to ride it out.” u
HAMILTON
groups that are aggressively looking for properties,” she says.
“There’s a lot of buzz around whether we’ll see more foreign
interest this year, and I think we will, but I also think you
can’t underestimate the wealth in our country.”
She says players to watch are mainly Ontario or B.C.based private groups looking to expand their portfolios.
She thinks both private and public will be competitive this
year. “On the lender side, it really is still a relatively small
market, so it will be the usual cast of characters in terms of
the credit unions in the smaller markets and, if it’s bigger
properties, insurance companies and foreign banks.”
47
HOTELIER
The Power
of Hospitality
Montreal’s Paul Ielovcich achieves
success putting smiles on the faces
of his guests
BY ROSANNA CAIRA
B
48
MAY 2016 HOTELIER
even showcases shower lighting that changes colour
depending on the temperature of the water.
Ielovcich leads a team of 10 by example. “I prefer
to work in the lobby to stay in contact with guests
and make myself available to the team.” He wants
to ensure “every client that walks through our doors
leaves having had a memorable experience.” But he’s
also quick to quip, “always keep a toilet plunger at
the front desk.”
Though the hotel is only two years old, it’s
already gone through a refurbishment of its cosy,
24-seat Italian restaurant. “The cool exposed brick
and stone have been softened with rich colours and
textures.” He’s looking forward to further changes
planned for the lobby lounge. “The character of
the space changes throughout the day and we’re
looking to serve different purposes — from breakfast to a nightcap.”
With increasing competition, the young GM is
quick to underline the importance of knowing what
your hotel is all about. “A strong brand will attract a
clientele that relates to the hotel’s personality. The
second element is having staff who connect on a
personal level with the guest. Then it’s no longer
about the thread count or star rating — it’s about
something more intimate and hard to emulate.” u
PHOTOGRAPHY BY DREW HADLEY
eing a hotelier was never part of Paul
Ielovcich’s game plan. The 33-year- old
Calgary native originally aspired to
be an engineer, but while at university he
realized he didn’t enjoy some aspects of the
program and decided to leave.
As luck would have it, he landed in the
hospitality industry, becoming a part-time
barista at the W Hotel in Montreal, which
led him to enrol at l’institut de Tourisme
et d’hôtellerie for a degree in International
Hotel Management.
During his stint as a barista, and later as a bartender, he came to understand the
power of hospitality. “It was
QUICK QUIPS:
rewarding to put a smile on a
Reason for Success: “Mentors.
guest’s face, whether having
They’ve always put things into
a favourite drink ready [for
perspective as well as provided
opportunities for personal and
them] or by offering a compasprofessional growth.”
sionate ear to someone having
Hobby: “Travelling. It’s one of
a hard day.”
the many pleasures of working
T hese days, Ielovcich i s
in this industry.”
putting smiles on the faces of
Stress Breakers: “Friends and
his guests at the chic two-year
family. There’s nothing a good
old Epik Hotel in Montreal.
meal and a glass of wine can’t fix.”
“Developing a new boutique
brand and following through
on its execution has been the greatest challenge
and thrill of my career,” says the confirmed bachelor of his first venture involved in branding and
renovating a hotel from the ground up.
He’s proud of the end result — an intimate
10-room hotel housed in a 200-year old building
in Old Montreal that was once a warehouse and a
bed-and-breakfast. The hotel boasts unique features
such as stone walls and post-and-beam ceilings, yet
emits both a modern vibe and old-world charm. It
TRANSFORM THE GUEST EXPERIENCE
AND YOUR BOTTOM LINE
A full suite of solutions to
accommodate 5-star service.
Whether your guests are checking in, enjoying a 5-star meal, or
relaxing in your spa, you succeed in hospitality because you know
the value of a single relationship. So do we.
Agilysys develops next-generation SaaS and on-premise hospitality
solutions that help you create remarkable service for your guests. A
single relationship with Agilysys will help you win the guest recruitment
battle, increase wallet share and drive down operating costs.
AGILYSYS SOFTWARE SOLUTIONS:
• Property Management
• Point of Sale
• Payment Gateway
• Analytics
• Activity Scheduling
• Reservation & Table Management
• Inventory & Procurement
• Workforce Management
• Document Management
877-369-6208
LEARN MORE ABOUT AGILYSYS AT WWW.AGILYSYS.COM/HOTELS
sales@agilysys.com
www.agilysys.com
TRANSFORMING HOSPITALITY BY BUILDING
LASTING CONNECTIONS
Copyright ©2016 Agilysys, Inc.
Element Hotels
EXTENDED STAY REIMAGINED
With a rapidly expanding portfolio, Element Hotels is transforming the select service
segment. Sustainable modern design and an innovative guest experience resonate
with today’s traveler and help deliver strong returns for owners. With updated room
types and new flexible options for conversion and adaptive reuse, as well as a
reduced cost to build, the time to build is now. BUILD BETTER.
Contact us: 203-964-4468
starwoodhotels.com/development
©2016 Starwood Hotels & Resorts Worldwide, Inc. All Rights Reserved. Preferred Guest, SPG, Element and their logos are the trademarks of Starwood Hotels & Resorts Worldwide, Inc., or its affiliates.

Cover - Hotelier Magazine

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